Home Depot Warns of Declining Annual Profit and Steeper Drop in Sales

2 min read | August 13, 2024 07:36 AM PDT | By Team Kalkine Media

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Home Depot Warns of Declining Annual Profit and Steeper Drop in Sales — Image source: shutterstock

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Home Depot (NYSE:HD) issued a warning on Tuesday about a significant decline in its annual profit and a larger-than-expected drop in annual comparable sales, citing weak discretionary spending as a key factor. The retailer's downbeat forecast comes as customers continue to delay major home improvement projects in response to ongoing inflation, higher mortgage rates, and elevated home prices.

Impact on Stock and Sales Performance

Following the announcement, shares of Home Depot fell by approximately 2% in premarket trading. The company's comparable sales for the second quarter also declined more sharply than anticipated, dropping by 3.3%, compared to analysts' expectations of a 1.98% decrease according to LSEG data. This marks the 13th consecutive quarter of declining customer transactions, with a 1.8% drop recorded in the second quarter.

The weakening consumer sentiment has particularly impacted big-ticket items such as flooring, kitchen cabinets, and bathroom renovations. Additionally, weak new home sales in May and June contributed to a 0.4% decrease in foot traffic in July, following a 4.3% rise in June, according to data from Placer.ai.

Revised Forecasts and Market Reactions

Home Depot now expects its annual comparable sales to decline by 3% to 4%, a sharp revision from its earlier projection of a nearly 1% decline. The company also adjusted its outlook for diluted earnings per share, anticipating a decline of 2% to 4%, compared to a prior forecast of a nearly 1% increase.

The retailer's revised outlook has raised concerns among analysts and investors about the potential for a recovery in 2025. In a note, Stifel analysts expressed doubt over Home Depot's ability to rebound, given the challenging economic conditions and the prolonged weakness in consumer spending.

Shares of Home Depot's rival, Lowe's (NYSE:LOW), also fell by 3% in premarket trading following the news, as investors brace for the company's upcoming earnings report next week. Meanwhile, all eyes are on Walmart (NYSE:WMT), a retail bellwether, which is set to report its earnings on Thursday.

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